<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
-------------
FORM 10-Q
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the quarterly period ended June 30, 1998.
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the transition period from ______ to ______
Commission file number 0-28440
CARDIOVASCULAR DYNAMICS, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 68-0328265
(State or other jurisdiction of (I.R.S.Employer
incorporation or organization) Identification Number)
13700 ALTON PARKWAY, SUITE 160, IRVINE, CALIFORNIA 92618
(Address of principal executive offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (949) 457-9546
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceeding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
On August 3, 1998, the Registrant had outstanding approximately 9,533,000 shares
of Common Stock (including 645,000 treasury shares) of $.001 par value, which is
the Registrant's only class of Common Stock.
<PAGE> 2
CARDIOVASCULAR DYNAMICS, INC.
FORM 10-Q
JUNE 30, 1998
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Part I. Financial Information
Item 1. Condensed Consolidated Financial Statements (Unaudited)
Condensed consolidated balance sheets at June 30, 1998 and
December 31, 1997 3
Condensed consolidated statements of operations for the three
and six months ended June 30, 1998 and 1997 4
Condensed consolidated statements of cash flows for the six
months ended June 30, 1998 and 1997 5
Notes to condensed consolidated financial statements 6
Item 2. Management's discussion and analysis of financial condition
and results of operations 9
Part II. Other Information
Items 1 through 6. 15
Signatures 18
Exhibit Index 19
</TABLE>
<PAGE> 3
CARDIOVASCULAR DYNAMICS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents $ 4,302 $ 6,141
Marketable securities available-for-sale 23,900 24,773
Trade accounts receivable, net 2,390 2,752
Other receivables 317 282
Inventories 2,935 3,205
Other current assets 257 163
-------- --------
Total current assets 34,101 37,316
Property and equipment, net 1,542 1,550
Notes receivable from officers 124 273
Goodwill 1,702 1,809
Other assets 248 413
-------- --------
Total Assets $ 37,717 $ 41,361
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 1,583 $ 1,374
Accrued payroll and related expenses 681 1,162
Other accrued expenses 791 952
Deferred license revenue 1,600 --
-------- --------
Total current liabilities 4,655 3,488
STOCKHOLDERS' EQUITY
Convertible preferred stock, $.001 par value;
7,560,000 shares authorized, no shares issued and
outstanding -- --
Common stock, $.001 par value; 30,000,000 authorized,
9,485,000 shares and 9,389,000 shares outstanding as of
June 30, 1998 and December 31, 1997, respectively 9 9
Additional paid-in capital 60,525 60,371
Deferred compensation (518) (634)
Accumulated deficit (23,646) (19,821)
Treasury stock at cost, 645,000 and 345,000 common shares
as of June 30, 1998 and December 31, 1997, respectively (3,480) (2,205)
Unrealized gains on available-for-sale securities 185 176
Unrealized exchange rate loss (13) (23)
-------- --------
Total stockholders' equity 33,062 37,873
-------- --------
Total Liabilities and Stockholders' Equity $ 37,717 $ 41,361
======== ========
</TABLE>
See accompanying notes
3
<PAGE> 4
CARDIOVASCULAR DYNAMICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
1998 1997 1998 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenue:
Sales $ 2,457 $ 3,355 $ 4,923 $ 6,374
License revenue 400 -- 400
------- ------- ------- -------
Total revenues 2,857 3,355 5,323 6,374
Cost of sales 1,295 1,571 2,647 2,987
------- ------- ------- -------
Gross profit 1,562 1,784 2,676 3,387
Operating expenses:
Research, development and clinical 1,976 919 3,459 1,912
Marketing and sales 1,199 1,686 2,563 3,036
General and administrative 601 358 1,190 801
------- ------- ------- -------
Total operating expenses 3,776 2,963 7,212 5,749
------- ------- ------- -------
Loss from operations (2,214) (1,179) (4,536) (2,362)
Other income (expense):
Interest income 387 578 807 1,150
Other income (expense) (23) 12 (95) 25
------- ------- ------- -------
Total other income 364 590 712 1,175
------- ------- ------- -------
Net loss ($1,850) ($ 589) ($3,824) ($1,187)
======= ======= ======= =======
Basic and diluted net loss per share ($ 0.21) ($ 0.06) ($ 0.43) ($ 0.13)
======= ======= ======= =======
Shares used in computing basic and
diluted net loss per share 8,946 9,105 8,858 9,093
======= ======= ======= =======
</TABLE>
See accompanying notes
4
<PAGE> 5
CARDIOVASCULAR DYNAMICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Six months ended June 30,
1998 1997
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss ($ 3,824) ($ 1,187)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 330 154
Amortization of deferred compensation 116 62
Bad debt expense 60 24
Changes, net of effects from purchase of Clinitec:
Trade accounts receivable, net 302 (2,060)
Inventories 270 (1,270)
Other assets (58) 120
Accounts payable and accrued expenses (423) 258
Deferred revenue 1,600 (25)
-------- --------
Net cash used in operating activities (1,627) (3,924)
Cash flows provided by (used in) investing activities:
Purchase of available-for-sale securities (16,722) (22,646)
Sales of available-for-sale securities 17,605 20,582
Capital expenditures for property and equipment
and other assets (215) (423)
-------- --------
Net cash provided by (used in) investing activities 668 (2,487)
Cash flows provided by (used in) financing activities:
Proceeds from sale of common stock 66 136
Proceeds from exercise of stock options 88 100
Proceeds from repayment of affiliate debt 241 --
Purchase of treasury stock (1,275) --
-------- --------
Net cash provided by (used in) financing activities (880) 236
-------- --------
Net decrease in cash and equivalents (1,839) (6,175)
Cash and equivalents, beginning of period 6,141 17,192
-------- --------
Cash and equivalents, end of period $ 4,302 $ 11,017
======== ========
</TABLE>
See accompanying notes
5
<PAGE> 6
CARDIOVASCULAR DYNAMICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1998
1. BASIS OF PRESENTATION
Cardiovascular Dynamics, Inc. and subsidiaries ("CVD" or the "Company") design,
develop, manufacture and market catheters and stents used to treat certain
vascular diseases. The accompanying condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three and six month
periods ended June 30, 1998 are not necessarily indicative of results that may
be expected for the year ending December 31, 1998. For further information,
refer to the consolidated financial statements and footnotes thereto included in
the Company's Annual Report on Form 10-K for the year ended December 31, 1997.
2. NET LOSS PER SHARE
As of December 31, 1997, the Company adopted the Financial Accounting Standards
Board Statement No. 128, Earnings per Share. Statement No. 128 replaced the
calculation of primary and fully diluted earnings per share with basic and
diluted earnings per share.
3. INVENTORIES
Inventories are stated at the lower of cost, determined on an average cost
basis, or market value. Inventories consist of the following:
<TABLE>
<CAPTION>
JUNE 30, 1998 DECEMBER 31, 1997
-------------- -----------------
<S> <C> <C>
Raw materials $1,525,000 $1,285,000
Work-in-process 156,000 165,000
Finished goods 1,254,000 1,755,000
---------- ----------
$2,935,000 $3,205,000
========== ==========
</TABLE>
6
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CARDIOVASCULAR DYNAMICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. DEFERRED LICENSE REVENUE
In June of 1998, the Company signed a technology license agreement with Guidant
Corporation, an international interventional cardiology products company, to
grant them the ability to manufacture and distribute products using the
Company's focal technology. Under the Agreement, the Company is entitled to
receive certain milestone payments based upon the transfer of the technological
knowledge to Guidant, and royalty payments based upon the sale of products using
focal technology by Guidant. An initial license payment of $2.0 million was
received by the Company upon the signing of the Agreement. Based upon the
completion of certain initial technology transfer milestones, the Company
recognized $0.4 million in license revenue in the second quarter of 1998 and
will recognize the remaining $1.6 million of deferred license revenue in future
periods.
5. RECENT ACCOUNTING PRONOUNCEMENTS
For the year beginning January 1, 1998, the Company adopted Statement of
Financial Accounting Standards No. 130, Reporting Comprehensive Income
("Statement No. 130"). Statement No. 130 establishes standards for reporting and
displaying comprehensive income and its components with the same prominence as
other financial statement information. For the periods ending June 30, 1998 and
1997, the changes in the components of comprehensive income were not materially
different than reported net loss.
For the year beginning January 1, 1998, the Company adopted Statement of
Financial Accounting Standards No. 131, which concerns disclosures about
Segments of an Enterprise and Related Information ("Statement No. 131").
Statement No. 131 establishes standards for the way that public business
enterprises report selected information about operating segments in annual and
interim financial statements. However, as the Company operates in one business
segment, no additional interim reporting is required under Statement No. 131.
In March 1998, the AICPA issued SOP 98-1, Accounting for the Costs of Computer
Software Developed for or Obtained for Internal Use. The SOP is effective
beginning January 1, 1999 and requires the capitalization of certain costs
incurred after the date of adoption in connection with developing or obtaining
software for internal use. The Company currently expenses such costs. The
Company anticipates that the impact of the SOP will not be material on its
results of
7
<PAGE> 8
CARDIOVASCULAR DYNAMICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
5. RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED)
operations or financial position for the foreseeable future as amounts expended
to develop or obtain software have not been and are not expected to be material.
6. ACQUISITION
In July 1997, the Company acquired its independent distributor in Germany and
Switzerland, Clinitec GmbH ("Clinitec"). In exchange for the assumption of the
assets and liabilities of Clinitec, including bank debt of $0.3 million, the
Company acquired all of the common stock of Clinitec. At the time of the
acquisition, Clinitec had a deficiency in stockholder's equity of approximately
$0.5 million.
Proforma combined results of the Company and Clinitec for the three and six
month periods ended June 30, 1997 on the basis that the acquisition had taken
place at the beginning of 1997, would have reported the following:
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
1997 1997
---- ----
<S> <C> <C>
Proforma Revenues $ 3,487,000 $ 6,637,000
Proforma Net Loss (868,000) (1,745,000)
Proforma Net Loss
Per Share (0.09) (0.19)
</TABLE>
7. OTHER SIGNIFICANT EVENTS
In July 1996, the Company and Medtronic, Inc. ("Medtronic") entered into a
written OEM agreement ("Agreement") pursuant to which Medtronic was to purchase
certain angioplasty balloon catheters and related components from the Company.
In May 1997, Medtronic advised the Company of its election to not make minimum
purchases of product for the second year of the Agreement. This dispute
adversely affected the Company's financial results for the quarter and six-month
periods ended June 30, 1997 and 1998.
8
<PAGE> 9
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
All statements other than statements of historical fact included in this Report
on Form 10-Q are forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934. The Company intends that such forward-looking statements be subject to the
safe harbors created thereby. Although the Company believes that the
expectations reflected in such forward-looking statements are reasonable at this
time, it can give no assurance that such expectations will prove to have been
correct. The Company makes no undertaking to correct or update any such
statements in the future. Important factors that could cause actual results to
differ materially from the Company's expectations ("Cautionary Statements") are
set forth in "Management's Discussion and Analysis of Financial Condition and
Results of Operations" as well as in the Company's Annual Report on Form 10-K
for the year ended December 31, 1997. All subsequent written and oral
forward-looking statements attributable to the Company or persons acting on its
behalf are expressly qualified in their entirety by the Cautionary Statements.
OVERVIEW
Since its inception in 1992, CardioVascular Dynamics, Inc. has engaged primarily
in the research and development of products for the treatment of cardiovascular
disease. The Company's financial results will be affected in the future by
several factors, including the timing of any FDA approval to market the
Company's products, FDA approval of IDE sites and the number of patients
permitted to be treated, future changes in government regulations and third
party reimbursement policies applicable to the Company's products, the progress
of competing technologies and the ability of the Company to develop the
manufacturing and marketing capabilities necessary to support commercial sales.
As a result of these factors, revenue levels, gross margins and operating
results may fluctuate from quarter to quarter.
On July 15, 1996, the Company entered into co-distribution agreements with
Medtronic, providing for the co-distribution of the Company's FACT, CAT and ARC
balloon angioplasty catheters. Under the terms of these agreements, Medtronic
purchased a minimum number of angioplasty catheters manufactured by the Company
for distribution worldwide for a period of up to three years. Specific products
to be distributed by Medtronic would differ in individual country markets. The
initial term of the Medtronic agreements was for a period of three years from
the date of first delivery of a product. In May of 1997 Medtronic advised the
Company of its election to not make minimum purchases of product for the second
year of the
9
<PAGE> 10
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
agreement. In June 1997 Medtronic informed CVD that it would not fulfill its
commitment for the first year of the agreement and that it did not believe it
was required to fulfill such commitment. This dispute adversely affected the
Company's financial results for the first half of 1998.
In June of 1998, the Company signed a technology license agreement with Guidant
Corporation, an international interventional cardiology products company, to
grant them the ability to manufacture and distribute products using the
Company's focal technology. Under the Agreement, the Company is entitled to
receive certain milestone payments based upon the transfer of the technological
knowledge to Guidant, and royalty payments based upon the sale of products using
focal technology by Guidant. See Note 4 to the Condensed Consolidated Financial
Statements.
RESULTS OF OPERATIONS
Second quarter of 1998 compared to the same period in 1997
Revenue for the second quarter of 1998 decreased 15% to $2.9 million compared to
$3.4 million for the second quarter of 1997. The decrease resulted primarily
from sales to one large former international distributor of approximately $0.5
million in the second quarter of 1997. Revenue for the second quarter of 1998
included $0.4 million from certain product licensing fees paid by Guidant
Corporation.
The gross profit percentage for the second quarter of 1998 increased to 55%
compared to 53% for the same period of 1997. The increase is attributable
primarily to the inclusion in 1998 revenues of product license fees that had no
associated cost of sales.
Research, development and clinical expenses increased by 115% to $2.0 million in
the quarter ended June 30, 1998, from $0.9 million in the quarter ended June 30,
1997. The primary reason for this increase was additional spending on
development of the Company's new SEAL technology stent products and increased
spending on clinical trials for these products.
Marketing and sales expenses decreased 29% to $1.2 million, down $0.5 million in
the quarter ended June 30, 1998, compared to $1.7 million in the same period of
1997. This decrease primarily reflects reductions in the Company's domestic
sales force and related expenses.
10
<PAGE> 11
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
General and administrative expenses increased by 68% to $0.6 million for the
quarter ended June 30, 1998, from $0.4 million for the same quarter in 1997. The
increase was due primarily to the appointment of an executive officer and the
operating expenses of the company's German distributor, Clinitec, which the
company acquired in July 1997.
Interest income decreased 33% to $0.4 million in the second quarter of 1998 from
$0.6 million for the same period of 1997. The decrease was primarily due to the
use of funds for operations and, secondarily, due to the purchase of property
and equipment and treasury stock, resulting in a reduction in cash and cash
equivalents and marketable securities of 28% ($10.6 million) from June 30, 1997
to June 30, 1998.
First six months of 1998 compared to the same period of 1997
Revenue for the first six months of 1998 decreased 16% to $5.3 million compared
to $6.4 million for the same period of 1997. The decrease resulted primarily
from sales to one large former international distributor of approximately $1.5
million made in the first six months of 1997. Revenue for the first six months
of 1998 included $0.4 million from certain product licensing fees paid by
Guidant Corporation.
The gross profit percentage for the first six months of 1998 decreased to 50%
compared to 53% for the same period of 1997. Although revenue for the first six
months of 1998 included $0.4 million from licensing fees which had no associated
cost of sales, the gross profit percentage decreased, compared with the same
period of 1997, primarily due to an increase in the Company's provision for
inventory obsolescence.
Research, development and clinical expenses increased by 81% to $3.5 million in
the six-month period ended June 30, 1998 from $1.9 million in the six-month
period ended June 30, 1997. The primary reason for this increase was additional
spending on development of the Company's new SEAL technology stent products and
increased spending on clinical trials for these products.
Marketing and sales expenses declined 16% to $2.6 million, from $3.0 million in
the six month period ended June 30, 1997. This decrease primarily reflects
reductions in the Company's domestic sales force and related expenses.
11
<PAGE> 12
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
General and administrative expenses increased by 49% to $1.2 million for the six
months ended June 30, 1998 from $0.8 million for the same period in 1997. The
increase was due primarily to the appointment of an executive officer and the
operating expenses of the company's German distributor, Clinitec, which the
company acquired in July 1997.
Interest income declined to $0.8 million in the first six months of 1998
compared with $1.1 million in the same period of 1997. The decrease was due to a
reduction of $10.6 million in cash and cash equivalents and marketable
securities since June 30, 1997 due to the use of funds for operations, the
purchase of treasury stock and capital expenditures.
The Company has experienced an operating loss for each of the last four years.
The Company expects to continue to incur operating losses through at least 1999,
and there can be no assurance that the Company will ever be able to achieve or
sustain profitability in the future. CVD's results of operations have varied
significantly from quarter to quarter. Quarterly operating results will depend
upon several factors, including the timing and amount of expenses associated
with expanding the Company's operations, the conduct of clinical trials and the
timing of regulatory approvals, new product introductions both in the United
States and internationally, the mix between pilot production of new products and
full-scale manufacturing of existing products, the mix between domestic and
export sales, variations in foreign exchange rates, changes in third-party
payors' reimbursement policies and healthcare reform. The Company does not
operate with a significant backlog of customer orders, and therefore revenues in
any quarter are significantly dependent on orders received within that quarter.
In addition, the Company cannot predict ordering rates by distributors, some of
whom place infrequent stocking orders. The Company's expenses are relatively
fixed and difficult to adjust in response to fluctuating revenues. As a result
of these and other factors, the Company expects to continue to experience
significant fluctuations in quarterly operating results, and there can be no
assurance that the Company will be able to achieve or maintain profitability in
the future.
The Company has completed an assessment, has upgraded, and must upgrade portions
of its software so that its computer systems will function properly with respect
to dates in the year 2000 and thereafter. Of the total Year 2000 project cost
estimated at $5,000, approximately $4,000 has been expended and future
expenditures for upgrades are not expected to exceed said estimate by a material
amount. The project is estimated to be completed not later than December 31,
1998, which is prior to any anticipated impact on the operating systems.
However, if such
12
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
upgrades are not made, or are not completed timely, the Year 2000 Issue could
have a material impact on the operations of the Company.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has financed its operations primarily through
the sale of its equity securities. Prior to the Company's initial public
offering on June 19, 1996, the Company raised approximately $11.4 million from
the private sales of preferred and common stock and $2.7 million in working
capital advances from Endosonics Corporation (CVD's former parent company). The
Company repaid Endosonics Corporation during the third quarter of 1996.
On June 19, 1996, the Company closed its initial public offering, which
consisted of the sale of 3,400,000 shares of common stock at $12.00 per share.
On July 17, 1996, the Company's underwriters exercised their overallotment
option to purchase an additional 510,000 shares of common stock at $12.00 per
share. CVD received net offering proceeds from the sale of common stock of
approximately $42.8 million after deducting underwriting discounts and
commissions and other expenses of the offering.
On June 30, 1998, the Company had cash, cash equivalents and marketable
securities available for sale of $28.2 million. Net cash used in operating
activities was $1.6 million for the first six months of 1998 as compared to $3.9
million for the same period of 1997. The Company expects to incur substantial
costs related to, among other things, clinical testing, product development,
marketing and sales expenses, and increased working capital, prior to achieving
positive cash flow from operations. The Company anticipates that its existing
capital resources will be sufficient to fund its operations through 1999. CVD's
future capital requirements will depend on many factors, including its research
and development programs, the scope and results of clinical trials, the
regulatory approval process, the costs involved in intellectual property rights
enforcement or litigation, competitive products, the establishment of
manufacturing capacity, the establishment of sales and marketing capabilities,
and the establishment of collaborative relationships with other parties. The
Company may need to raise funds through additional financings, including private
or public equity offerings and collaborative arrangements with existing or new
corporate partners. There can be no assurance that funds will be raised on
favorable terms, or at all. If adequate funds are not available, the Company may
be required to delay, scale back or eliminate one or more of its development
programs or obtain funds through arrangements with
13
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
collaborative partners or others that may require the Company to grant rights to
certain technologies or products that the Company would not otherwise grant.
Trade accounts receivable, net, decreased 13% to $2.4 million as of June 30,
1998, compared with $2.8 million at December 31, 1997. The decrease was
primarily due to the decrease in the sales levels for the six months ended June
30, 1998 compared with sales for the same period of 1997.
Inventories decreased 8% to $2.9 million as of June 30, 1998, compared with $3.2
million at December 31, 1997. This decrease resulted from lower production
levels associated with the lower level of sales. Accounts payable and accrued
expenses increased 15% to $1.6 million at June 30, 1998, compared with $1.4
million at the end of 1997 primarily due to payment timing differences.
Property and equipment, net, was unchanged at $1.5 million at December 31, 1997
and June 30, 1998.
Deferred license revenue resulted from a $2.0 million technology license revenue
payment paid by Guidant Corporation to the Company upon the signing of a
technology license agreement for the Company's focal technology. Based on the
completion of certain initial technology transfer milestones, the Company will
recognize the remaining $1.6 million in deferred license revenue. See Note 4 to
the Condensed Consolidated Financial Statements.
14
<PAGE> 15
PART II.
OTHER INFORMATION
Items 1 and 3 through 5. Not applicable
Item 2. Changes in Securities and Use of Proceeds
(d) Use of Proceeds
The Company has used approximately $2.7 million of the net proceeds from its
initial public offering on June 19, 1996, SEC file number 333-04560, the IPO for
repayment of certain outstanding indebtedness to Endosonics, Inc., a holder of
in excess of ten percent of the Common Stock of the Company. From the date of
the IPO until June 30, 1998, in the normal course of business, the Company has
paid salaries and bonuses in excess of $0.1 million each to seven officers of
the Company and used $6.9 million for working capital. The Company has also used
approximately $1.6 million of the net proceeds for machinery and equipment and
leasehold improvement purchases. In February, 1998, the Company used
approximately $1.3 million to purchase 300,000 shares of the Company's Common
Stock from Endosonics, bringing the total expended since the IPO for treasury
stock purchases to $3.5 million. At June 30, 1998, approximately $26.0 million
was held in temporary investments, of which approximately $7.0 million was
invested in U.S. Treasury and Agency debt securities and $19.0 million was
invested in corporate debt securities.
Item 4. Submission of Matters to a Vote of Security-Holders
The Company's Annual Meeting of Stockholders was held on May 19, 1998. The
following actions were taken at this meeting:
<TABLE>
<CAPTION>
Abstentions
and
Broker Non- Affirmative Negative
Votes Votes Votes Withheld
<S> <C> <C> <C> <C>
a. Amendment to CVD's 1996
Stock Option/Stock Issuance
Plan to effect an increase in
the number of shares available
for issuance by an additional 200,000
shares of Common Stock and to effect
certain Other changes as set forth
In the Proxy Statement. 133,103 7,056,457 608,088 -0-
</TABLE>
15
<PAGE> 16
Item 4. Submission of Matters to a Vote of Security-Holders (continued)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
b. Amendment to CVD's
Employee Stock Purchase
Plan to delete the share number
limit on the maximum number of
shares of Common Stock purchaseable
by each participant. 127,856 6,895,338 774,454 -0-
C. Amendment of CVD'S
Amended & Restated
Certificate of Incorporation
To eliminate cumulative
Voting for the election of
Directors. 42,415 6,100,372 1,654,861 -0-
d. Amendment of CVD's
Amended & Restated
Certificate of Incorporation
To provide for a classified
Board of Directors. 36,706 6,767,195 993,747 -0-
e. Election of Directors.
Franklin D. Brown 7,307,354 490,294
William G. Davis 7,308,354 489,294
Michael R. Henson 7,308,320 489,328
Edward M. Leonard 7,308,354 489,294
Gerard Von Hoffman 7,308,354 489,294
f. Ratification of Ernst &
Young LLP as CVD's
independent auditors
for the fiscal year ending
December 31, 1998. 14,448 7,777,281 5,919 -0-
</TABLE>
16
<PAGE> 17
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are filed herewith:
Exhibit 10.24 License Agreement by and between the Company
and Guidant Corporation dated
June 19, 1998(*)
Exhibit 11 Statement Regarding the Computation of Net Loss Per
Share
Exhibit 27 Financial Data Schedule
- ------------------
* Portions omitted pursuant to a request for confidential treatment.
(b) No reports on Form 8-K were filed during the quarter.
17
<PAGE> 18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by undersigned
thereto duly authorized.
CARDIOVASCULAR DYNAMICS, INC.
Date: August 11, 1998 /s/ Jeffrey F. O'Donnell
------------------------
Chief Executive Officer
(Principal Executive Officer)
Date: August 11, 1998 /s/ Stephen R. Kroll
--------------------
Vice President-Finance and Chief
Financial Officer
(Principal Financial and Accounting
Officer)
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<PAGE> 19
EXHIBIT INDEX
10.24 License Agreement by and between the Company and Guidant Corporation
dated June 19, 1998(*)
11 Statement Regarding the Computation of Net Loss Per Share
27 Financial Data Schedule
- -------------------------
* Portions omitted pursuant to a request for confidential treatment.
19
<PAGE> 1
EXHIBIT 10.24
[*] Confidential Portions Omitted
LICENSE AGREEMENT
THIS LICENSE AGREEMENT ("Agreement") is made and entered into effective
as of June 19, 1998 (the "Effective Date") by and between CARDIOVASCULAR
DYNAMICS, INC., a Delaware corporation having a place of business at 13700 Alton
Parkway, Irvine, CA 92618 ("CVD"), and GUIDANT CORPORATION, an Indiana
corporation having a place of business at 3200 Lakeside Drive, Santa Clara, CA
95052-8167 and its Affiliates ("Guidant").
RECITALS:
A. CVD is engaged in the discovery, development, manufacture and sale of
medical devices for the treatment of vascular disease.
B. CVD has developed or acquired and is the owner of all right, title
and interest in the CVD Patents, including the inventions covered thereby, as
well as CVD Know-How (each as defined below), relating to balloons with an
adjustable, larger center diameter and smaller, fixed distal and proximal
diameters for balloon catheters known as the Focus Technology balloon catheters,
including, without limitation, methods for constructing such balloon catheters
(the "CVD Technology").
C. Guidant is and has been engaged in the discovery, development,
manufacture and sale of medical devices for the diagnosis and treatment of
vascular disease, and continues to be active in this area.
D. Both parties desire that Guidant license from CVD the CVD Technology,
including certain exclusive distribution rights with respect to Licensed
Products as defined below, under the terms and conditions of this Agreement.
AGREEMENT
The parties hereby agree as follows:
1. DEFINITIONS
(a) "Affiliate" means any company or entity which controls, is
controlled by, or is under common control with, an entity. For purposes of this
definition, "control" means: (a) in the case of corporate entities, direct or
indirect ownership of more than fifty percent (50%) of the stock or shares
entitled to vote for the election of directors; and (b) in the case of
non-corporate entities, direct or indirect ownership of more than fifty percent
(50%) of the equity interest with the power to direct the management and
policies of such non-corporate entities.
(b) "Effective Date" means the date first written above.
<PAGE> 2
(c) "Foreign Counterparts" means all foreign patent applications and
issued foreign patents, which claim priority from, or share common priority
with, an identified United States patent or patent application, or which claim
and disclose substantially similar inventions that are the subject matter of
such identified U. S. patent or patent applications.
(d) "Improvements" means modifications of or enhancements to CVD
Technology, including, but not limited to, each version of a balloon with an
adjustable, larger center diameter and smaller, fixed distal and proximal
diameters for balloon catheters, made by or for CVD during the term of this
Agreement.
(e) "CVD Know-How" means information regarding CVD Technology now
existing or hereafter developed which is either confidential or not known or
used by others who do not have licenses for such use, including, but not limited
to, devices, specifications, methods of use, technical, business, design,
manufacturing, bench, animal, clinical and the like information. CVD Know-How
shall include any and all unpatented Improvements.
(f) "CVD Patents" means (i) the patent rights owned or controlled by CVD
in the patents and patent applications identified on Exhibit A attached hereto
and incorporated into this Agreement by reference, and the inventions covered by
those applications and patents, and Foreign Counterparts thereof, (ii) any
additional patent rights CVD now owns, controls or has access to, or may own,
control or have access to in the future which are continuations,
continuations-in-part, divisionals or substitutes of the original applications
upon which the aforementioned patent rights are based, and the inventions
covered thereby, or Foreign Counterparts thereof, and upon any reexaminations,
reissues, renewals or extensions thereof, and (iii) any patent rights which CVD,
either now or in the future, owns, controls or has access to necessary to
exploit the CVD Technology. CVD Patents shall include any and all patented
Improvements.
(g) "Licensed Product" means a balloon catheter or other inflatable
Stent delivery system having a balloon with an adjustable, larger center
diameter and smaller, fixed distal and proximal diameters which: (i) if made,
used, or sold in the absence of the license under the CVD Patents would infringe
one or more Valid Claims included in the CVD Patents, or (ii) is made or sold in
a country where CVD has a pending patent application (which has not been
disallowed without possibility of appeal or abandoned) with respect to the CVD
Technology, if, had the manufacture or sale been effected in the United States,
such manufacture or sale would infringe one or more Valid Claims of a CVD Patent
issued in the United States; or (iii) incorporates, embodies, uses or is
designed or produced with CVD Know-How or CVD Technology.
(h) "Licensed Product Bundle" or "Bundle" means a bundle, system or kit
that is marketed as a single product that either: (i) includes a Licensed
Product on which a Stent is mounted; or (ii) is shipped to hospital customers in
a single, end-user, sterile package that includes a Licensed Product together
with a Stent, and which package may also include other ancillary products
directly related to the Stent that is included in the package, such as a Stent
crimping tool.
(i) "CVD Technology" has the meaning provided in the recitals of this
Agreement.
2
<PAGE> 3
(j) "Market Release" means Guidant's first sale of a Licensed Product
Bundle to a non-Affiliate; provided, however, that sales in connection with a
clinical trial or physician preference test will not constitute a "Market
Release" for purposes of this Agreement.
(k) "Net Sales" means the gross amounts recorded by Guidant on the
accrual method for sales of Licensed Product Bundles by Guidant or its
Affiliates, as applicable, less all actual bad debt incurred in connection with
sales of Licensed Product Bundles and any discounts, rebates and credit for
returned goods and cancellations, to the extent related to the Licensed Product
Bundle, freight charges, insurance and other costs of shipping and handling,
sales or use taxes and duties.
(l) "Region" means a region listed in Exhibit B of this Agreement.
(m) "Royalty Bearing Licensed Product" means a Licensed Product as
defined in Subsections (g)(i) or (g)(ii) above. Royalty Bearing Licensed Product
does not include a Licensed Product as defined in Subsection (g)(iii) above;
provided that neither of Subsections (g)(i) or (g)(ii) also applies to such
Licensed Product.
(n) "Stent" means any coronary or vascular stent, without regard to the
material from which the stent is made, including, but not limited to, balloon
expandable stents, self-expanding stents, covered and uncovered stents, and
coated and uncoated stents.
(o) "Successful Completion of Technology Transfer " means that Guidant
has acquired an understanding of the CVD Technology sufficient to enable Guidant
to carry out its licensed rights as set forth in Section 2 below as to Licensed
Products and Licensed Product Bundles and to market the same to its customers.
The Joint Committee, as defined in Section 3 of this Agreement, shall determine
when Successful Completion of Technology Transfer has occurred, in its
reasonable discretion, and in accordance with Exhibit D.
(p) "Valid Claim" means a claim of an issued patent that has not been
held or declared invalid, unpatentable or unenforceable by the United States
Patent and Trademark Office, a foreign patent office, or a court of competent
jurisdiction, unappealable or unappealed within the time allowed for appeal, and
which has not been admitted to be invalid or unenforceable.
2. GRANT OF LICENSES TO GUIDANT
(a) Exclusive License.
(i) Grant of Exclusive License. CVD hereby grants to Guidant an
exclusive right and license under CVD Technology, CVD Know How and CVD
Patents to use, sell, offer for sale, import and otherwise dispose of,
Licensed Products solely as part of a Licensed Product Bundle in the
United States and Canada and in each other Region (or part of a Region)
that becomes subject to this exclusive license as set forth in
subsection (ii) below.
(ii) Addition of Exclusive License in other Regions. As of the
execution of this Agreement, CVD has appointed various distributors of
products covered by the CVD Patents or which otherwise use or
incorporate the CVD Technology in Regions other than in the United
States and Canada (the "Grandfathered Distributors"). CVD represents and
warrants
3
<PAGE> 4
to Guidant that no Grandfathered Distributor is also a manufacturer or
developer of coronary and peripheral balloon expandable Stents or of
inflatable Stent delivery systems (collectively, a "Stent
Manufacturer"). Upon any expiration or termination of any such
distributor agreement during the term of this Agreement, the Region (or
any portion thereof) covered by such expired or terminated distributor
agreement shall become "Available Territory" as set forth in this
Subsection. Upon expiration of the Grandfathered Distributor Agreement
for Mexico, which expiration CVD represents and warrants will occur on
December 30, 1999, or any earlier termination of such Agreement, Mexico
shall automatically become subject to the exclusive license granted
under Subsection (i) above.
(A) Prior to such time as Guidant has obtained exclusive licenses for each of
the Key Countries in a Region, as identified on Exhibit B to this Agreement,
then as to such Region, if CVD proposes to enter into a distribution agreement,
sales representative agreement or similar license agreement that would give
either a third party or the Grandfathered Distributor rights in any Available
Territory within such Region to make, have made, use, sell, offer for sale,
import and otherwise dispose of Licensed Products as part of a Licensed Product
Bundle, prior to entering into discussion regarding such distribution, sales
representative or similar license agreement, CVD shall notify Guidant in writing
of such intention, including the material terms and provisions upon which CVD
would be willing to enter into such an agreement (the "CVD Notice"). At CVD's
option CVD may provide the CVD Notice at any time from six (6) months prior to
the termination or expiration of the Grandfathered Distributor agreement up to
the date of such termination or expiration. For a period of forty-five (45) days
after Guidant's receipt of CVD's Notice, CVD shall negotiate exclusively with
Guidant, and CVD and Guidant shall negotiate in good faith the expansion of
Guidant's exclusive license as set forth in Subsection (i) above to include the
Available Territory. If the parties agree, then Guidant's exclusive license
under Subsection (i) above shall be expanded to include the Available Territory.
If the parties do not agree, then CVD shall be free to enter into an agreement
with any third party who is not a Stent Manufacturer with respect to Licensed
Products as part of a Licensed Product Bundle in the Available Territory,
subject to Guidant's co-exclusive rights under Subsection 2(b) below. If upon
the addition of the Available Territory to the territories already subject to
Guidant's exclusive license all of the Key Countries identified in Exhibit B for
a particular Region becomes subject to the exclusive license granted pursuant to
Subsection (i) above, then Guidant shall become obligated to pay to CVD the
applicable amount specified in Section 6(a)(iv) below.
(B) After such time as Guidant has obtained exclusive licenses for each of the
Key Countries in a Region, as identified on Exhibit B to this Agreement, and
Guidant has paid the applicable amount specified in Section 6(a)(iv) below, each
other country included in such Region shall become subject to the exclusive
license granted pursuant to Subsection (i) above. If there are Grandfathered
Distributors in any of the countries included in such Region, then upon
termination or expiration of the applicable Grandfathered Distributor agreement,
such country shall automatically become subject to the exclusive license granted
under Subsection (i) above.
(b) Co-Exclusive License.
(i) World-Wide. CVD hereby grants to Guidant a co-exclusive,
world-wide, right and license under the CVD Technology, CVD Know-How and
CVD Patents to make and have made Licensed Products and to practice
processes and methods under the CVD Technology to make and have made
Licensed Products solely for inclusion in Licensed Product Bundles.
4
<PAGE> 5
(ii) Where Guidant's License is Not Exclusive. In all areas of
the world where Guidant's exclusive license, as set forth in Subsection
(a)(i) above, does not apply, CVD hereby grants to Guidant a
co-exclusive right and license under the CVD Technology, CVD Know-How
and CVD Patents to use, sell, offer for sale and import or otherwise
dispose of Licensed Products solely as part of a Licensed Product
Bundle.
(iii) Meaning of Co-Exclusive. As used in this Agreement,
"co-exclusive" means that only CVD and Guidant shall have the
co-exclusive rights and that neither CVD nor Guidant may assign or
sublicense such rights except that either party may assign such rights
in connection with any transfer of substantially all the business to
which this Agreement relates, or upon a sale of a majority of the voting
stock or of all or substantially all of the assets of the assigning
party; provided, that upon such permitted assignment the assignee agrees
in writing to be subject to all of the terms and conditions of this
Agreement. In addition, CVD's co-exclusive rights with respect to the
license granted under Subsection (b)(ii) above, apply solely to the sale
of such Licensed Product Bundles to "Grandfathered Distributors," as
described in Subsection (a)(ii) above and to such additional parties as
CVD is permitted to appoint in Available Territories solely in
accordance with Subsection (a)(ii) above.
(c) Covenant Not to Sell. Guidant agrees and covenants not to sell,
market, make or have made, directly or indirectly, any Licensed Products except
pursuant to the licenses granted in Section 2(a) and Section 2(b) above.
(d) Limitation on License. Nothing in this Agreement shall be construed
as CVD granting a license with respect to any of its technology that pertains
solely to Stents, as distinct from Stent delivery systems.
3. TECHNOLOGY TRANSFER
(a) Commencing upon execution of this Agreement, CVD shall transfer to
Guidant all CVD Technology, including but not limited to copies of all relevant
patent and patent applications, CVD Know-How, design, manufacturing and quality
assurance data, processes and the like. In this regard, every reasonable effort
will be made to accomplish Successful Completion of Technology Transfer within
six (6) months from the Effective Date of this Agreement. Such transfer shall be
accomplished by means that include, but are not limited to, completion of the
tasks outlined in Exhibit D to this Agreement, hands on support by CVD experts
in the field of Focus Technology, visits by Guidant personnel to CVD's
facilities; and meetings at which CVD shall present and explain detailed aspects
of CVD Technology and answer Guidant's questions about CVD Technology. In order
to facilitate such technology transfer, the parties shall form a joint committee
(the "Joint Committee"), comprised of two (2) executives of each of CVD and
Guidant (or Guidant's Vascular Intervention Group). The Joint Committee shall
meet, in person or by telephone or video conference, as needed, during the
transfer of such technology to review the progress of the tasks described in
Exhibit D to this Agreement. Such meetings shall be at such times and at such
places as the Joint Committee may agree. The Joint Committee shall monitor the
progress of the transfer of technology and disputes or disagreements regarding
such transfer shall be first referred to such committee prior to becoming
subject to Section 25 below.
5
<PAGE> 6
(b) Commencing after the Successful Completion of Technology Transfer
and continuing throughout the term of the Agreement, CVD will transfer promptly
to Guidant all CVD Technology that becomes known to CVD during the term of the
Agreement, including but not limited to CVD Know-How, design, manufacturing and
quality assurance data, process and the like.
4. FUTURE DEVELOPMENT
(a) As between the parties, inventions, know-how or other information
developed during the term of this Agreement solely by one party shall be owned
exclusively by that party, subject to all obligations of disclosure and
licensing set forth herein.
(b) Inventions, know-how or other information relating to CVD Technology
developed during the term of this Agreement jointly by the parties shall be
jointly owned by the parties, and will be included in the CVD Patents or CVD
Know-How and licensed to Guidant without change in the royalty rate set forth
herein, and provided that such Invention constitutes an Improvement, at no
additional expense to Guidant.
5. DISCLOSURE OF IMPROVEMENTS AND RIGHTS THERETO
If CVD conceives, creates, reduces to practice, develops, acquires, or
otherwise obtains rights to any Improvements, CVD shall immediately notify
Guidant and disclose each such Improvement to Guidant in writing, including all
information relating to, or necessary to practice the Improvement. Any such
Improvements will be included in the licenses to Guidant under Section 2 at no
additional expense to Guidant and without change in the royalty rate set forth
herein.
6. ROYALTIES AND OTHER PAYMENTS
(a) Up Front and Milestone Payments. Subject to the terms and conditions
of this Agreement, Guidant shall make the following payments:
(i) Up Front Payment. Within ten (10) business days of the
execution and delivery of this Agreement by both parties, Guidant shall
pay to CVD the amount of [*] Dollars (U.S. $[*]).
(ii) Technology Transfer. Within ten (10) business days after the
date of such Successful Completion of Technology Transfer, Guidant shall
pay to CVD the amount of [*] Dollars ($[*]) (the "Initial Technology
Transfer Fee") for the transfer of CVD Technology as provided herein.
Notwithstanding the foregoing, if, for reasons other than CVD's acts or
omissions, Successful Completion of Technology Transfer has not occurred
by the date that is the later of (a) six (6) months after the Effective
Date; or (b) December 31, 1998, then Guidant shall pay the Initial
Technology Transfer Fee to CVD within ten (10) days of such date.
(iii) Quarterly Payments. On the first day of each of the
succeeding two (2) calendar quarters following the date on which
Successful Completion of Technology
[*] Confidential Portions Omitted and Filed Separately with the Commission.
6
<PAGE> 7
Transfer has occurred, Guidant shall pay to CVD the amount of [*]
Dollars (U.S. $[*]). Notwithstanding the foregoing, if for reasons other
than CVD's acts or omissions, Successful Completion of Technology
Transfer has not occurred by the date that is the later of (a) six (6)
months after the Effective Date; or (b) December 31, 1998, then the
payment specified in the prior sentence shall be due within ten (10)
days of such later date.
(iv) Exercise of Option to Add Regions to Exclusive License. If
Guidant obtains exclusive licenses under Subsection 2(a)(ii) above to
each of the Key Countries in the European /Middle East Region then
Guidant shall pay to CVD the amount of [*]Dollars ($[*]) within ten (10)
business days after the date on which Guidant's exclusive license to
each of the Key Countries becomes effective. If Guidant obtains an
exclusive license under Subsection 2(a)(ii) above to the Key Country for
the Asia Pacific Region, then Guidant shall pay to CVD the amount of [*]
Dollars ($[*]) within ten (10) business days after the date on which
Guidant's exclusive license to such Key Country becomes effective.
(b) Royalties.
(i) Royalty Rates for Licensed Products Sold Under an Exclusive
License. Guidant shall pay a royalty of [*] percent ([*]%) of Net Sales
from Licensed Product Bundles that include one or more Royalty Bearing
Licensed Products and that are sold in Regions (or in specific parts of
Regions added pursuant to Section 2(a)(ii)) where Guidant holds an
exclusive license as set forth in Section 2(a)(i) above.
(ii) Royalty Rates for Licensed Products Sold Under a
Co-Exclusive License. Guidant shall pay a royalty of [*] percent ([*]%)
of Net Sales from Licensed Product Bundles that include one or more
Royalty Bearing Licensed Products and that are sold in Regions (or in
parts of Regions) where Guidant holds a co-exclusive license as set
forth in Section 2(b)(ii) above.
(iii) Single Royalty. For each Licensed Product Bundle that
includes one or more Royalty Bearing Licensed Products, Guidant shall be
required to pay only one royalty, on the first sale of such Licensed
Product Bundle calculated at the highest applicable rate, no matter how
many CVD Patents cover such Royalty Bearing Licensed Product or Licensed
Product Bundle.
(iv) Minimum Royalties. Notwithstanding the foregoing, commencing
upon the date that is the earlier of Market Release or January 1, 1999,
in order to maintain Guidant's exclusive license under Section 2(a)
above, Guidant shall pay a minimum annual royalty of [*] Dollars ($[*])
("Minimum Royalty Commitment") to CVD each calendar year, for a period
of one hundred eight (108) months during the term of this Agreement.
Subject to subsection (v) below, if total royalties paid by Guidant for
the applicable calendar year are less than the Minimum Royalty
Commitment, then Guidant shall pay to CVD the difference between actual
royalties paid and the Minimum Royalty Commitment within one hundred
(100) days after the end of each applicable calendar year during which
such royalties accrue. Otherwise, any such payment shall be made
pursuant to Section 7 of this Agreement. If Market Release occurs on or
prior to December 31, 1998, then the Minimum Royalty Commitment shall be
reduced proportionately for that year and for the last year of the 108
month period.
[*] Confidential Portions Omitted and Filed Separately with the Commission.
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<PAGE> 8
(v) Option to Terminate License. Guidant's obligations under the
preceding paragraph shall be subject to the following: Commencing with
the second calendar year in which the Minimum Royalty Commitment is in
effect, CVD shall, by written notice within ten (10) days after receipt
of the last royalty report applicable to such year, advise Guidant
whether the total of Guidant's royalty payments during that year were
less than the Minimum Royalty Commitment and request payment for the
difference (the "Shortfall"). If Guidant does not elect to pay such
Shortfall sixty (60) days from receipt of the Shortfall notice from CVD,
then CVD may terminate this Agreement, and Guidant shall have no
liability with respect to its nonpayment of the Shortfall.
(vi) Certain Transfers. No royalty shall be payable for transfers
(by sale or otherwise) of Royalty Bearing Licensed Products by Guidant
or any of its Affiliates, provided such transferred Royalty Bearing
Licensed Products are subsequently resold in a royalty-bearing
transaction or is used for clinical trials by Guidant or its Affiliates
in an experimental or other like setting where no Net Sales are
generated. If Guidant or any of its Affiliates transfers Royalty Bearing
Licensed Products as part of a Licensed Product Bundle for consideration
other than cash, such Licensed Product Bundle shall be deemed to have
been sold for an amount equal to the Average Selling Price for such
Licensed Product Bundle during the prior calendar quarter. The Average
Selling Price shall be calculated by dividing total net revenues
generated from worldwide sales of the Licensed Product Bundle by Guidant
and its Affiliates during the prior calendar quarter, divided by the
total number of such Licensed Products Bundle sold by Guidant and its
Affiliates during such calendar quarter.
(vii) No Royalties. No royalties shall be due with respect to
sales or other transfers of Licensed Products that are not Royalty
Bearing Licensed Products or of Licensed Product Bundles that do not
include any Royalty Bearing Licensed Products.
7. PAYMENT TERMS
(a) Royalty payments shall be made by check or wire transfer, at CVD's
election, to CVD within [*] ([*]) days after the end of each calendar quarter
during which royalties accrue. Each payment shall be accompanied by a report
that reflects at least (i) the quantity of Licensed Products subject to
reporting by virtue of activities of Guidant, and its Affiliates; (ii) Net Sales
amounts; (iii) the applicable royalty rate, and (iv) the royalties computed and
due to CVD. No report shall be required for any calendar quarter prior to a
quarter during which royalties first accrue. Thereafter, a report shall be
rendered for each calendar quarter during the remaining term of this Agreement.
(b) All amounts stated in this Agreement, and all payments made by
Guidant shall be in United States dollars. Any payments owed to CVD under this
Agreement that are not paid when due shall bear interest at [*] percent ([*]%)
per annum, or the maximum amount permitted by law, whichever is lower,
calculated on the number of days such payment is delinquent. Royalties accruing
on sales outside the United States shall be converted to United States dollars,
with conversion of foreign currency where appropriate based on the exchange rate
on the last day of the
[*] Confidential Portions Omitted and Filed Separately with the Commission.
8
<PAGE> 9
calendar quarter to which such payment related as published in the Wall Street
Journal. CVD shall hold in confidence all information reported with respect to
royalty payments, and shall refrain from disclosing such information to others,
except as may be required internally for management purposes and except as may
be required by Federal and State law or by governmental agencies.
8. RECORDS
Guidant shall keep or cause the responsible Affiliate to keep true and
accurate books and records with respect to all sales of Royalty Bearing Licensed
Products under this Agreement in accordance with customary accounting principles
and in a manner consistent with the accounting methods employed throughout its
business. CVD shall have the right, at its own expense, through an established
and reputable independent representative selected by CVD and agreed to in
writing by Guidant, to examine the relevant books and records of Guidant, or the
responsible Affiliate, at any reasonable time during business hours within
thirty (30) days after notifying Guidant of its desire to do so. This
examination shall take place no more than once each year and shall cover no more
than the preceding two (2) calendar years. The examination shall be solely for
the purpose of determining the accuracy of the reports and payments required to
be made by Guidant and its Affiliates. The independent representative shall
report only on the accuracy of such records and shall not disclose specific
entries except to the extent otherwise disclosed in reports rendered as provided
hereunder. If such examination results in a determination of an underpayment of
royalties to CVD, such underpayment shall be promptly remitted to CVD with
interest, as provided in Section 7(b) above, on any amounts due with respect to
the twelve (12) month period prior to the audit date. In addition, if such
examination determines that Guidant's royalty payments based on Net Sales are
more than 105% of the royalties on Net Sales reported by Guidant for the period
under examination, Guidant shall pay all reasonable costs of such examination.
If such examination results in a determination of an overpayment of royalties to
CVD, CVD shall promptly remit such overpaid amount to Guidant. In addition,
Guidant may elect to deduct such overpaid amount from royalty payments otherwise
due under this Agreement.
9. TAXES
All taxes levied on account of payments made by Guidant to CVD and
royalties accruing under this Agreement (other than taxes with respect to
Guidant's net income) shall be paid by CVD. If laws or regulations require the
withholding of taxes, the taxes will be deducted by Guidant from remittable
royalty and shall be paid to the proper taxing authority. Proof of payment shall
be sent to CVD within sixty (60) days following payment.
10. PROSECUTION OF PATENTS
(a) CVD shall have control of the preparation, prosecution and
maintenance of CVD Patents. The cost of such preparation, prosecution and
maintenance of CVD Patents shall be paid by CVD. If CVD determines that it does
not wish to continue the cost of preparation, prosecution or maintenance of such
CVD Patents in any individual case, it shall notify Guidant at least ninety (90)
days prior to taking, or not taking, any action which would result in the
abandonment, withdrawal, or lapse of any CVD Patent. In such circumstance,
Guidant shall have the right to control the preparation, prosecution or
maintenance thereof, as the case may be, at its own expense, but any such change
in control shall not affect the ownership thereof or the license to CVD Patents
hereunder.
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<PAGE> 10
(b) The provisions of Subsection 10(a) above will also apply to Foreign
Counterparts. The parties shall consult about the countries, if any, where
additional Foreign Counterparts will be filed, prosecuted and maintained. The
parties shall keep each other reasonably informed of the status of all CVD
Patents thereof for which they have responsibility as defined hereunder. If CVD
determines that it does not wish to prepare, prosecute or maintain certain
Foreign Counterparts, it shall notify Guidant of such decision, and, in any
event shall give Guidant at least ninety (90) days notice prior to taking, or
not taking, any action which would result in the abandonment, withdrawal, or
lapse of any Foreign Counterpart. In such circumstance, Guidant shall have the
right to control the preparation, prosecution or maintenance thereof, as the
case may be, at its own expense, but any such change in control shall not affect
the ownership thereof or the license to CVD Patents, including Foreign
Counterparts, hereunder.
(c) Each party shall cooperate with the other party, as reasonably
requested, to execute all lawful papers and instruments and to make all rightful
oaths and declarations as may be necessary in the preparation, prosecution and
maintenance of any and all such patents and patent applications contained within
CVD Patents. The party that is controlling such preparation, prosecution and
maintenance shall also pay the reasonable out-of-pocket costs of such
cooperation by the other party.
11. INFRINGEMENT BY THIRD PARTIES
(a) Each party will promptly notify the other of any infringement,
misappropriation, or possible infringement or misappropriation, of the CVD
Patents and CVD Know-How by any third party.
(i) Infringement Where Guidant's License is Exclusive. If the
infringement or misappropriation relates to a Stent delivery system and
occurs in a Region or part of a Region where Guidant has an exclusive
license under this Agreement, then Guidant shall have the sole right,
but not the obligation, to enforce CVD Patents and CVD Know-How against
such third parties at its own expense. CVD shall cooperate as reasonably
requested in such enforcement, and Guidant shall bear the reasonable
costs that Guidant incurs in providing such cooperation. If Guidant
elects, in its sole discretion, not to enforce any such infringement or
misappropriation, then Guidant shall so notify CVD within one hundred
eighty (180) days after receiving written notice of such infringement,
and CVD shall then have the right, but not the obligation, to enforce
such infringement or misappropriation at its own expense. Guidant shall
cooperate as reasonably requested in such enforcement, and CVD shall
bear the reasonable costs that Guidant incurs in providing such
cooperation.
(ii) Infringement Where Guidant's License is Co-Exclusive. If the
infringement or misappropriation either does not relate to a Stent
delivery system or relates to a Stent delivery system but occurs only in
a Region or part of a Region where Guidant has a co-exclusive license
under this Agreement, then CVD shall have the first right, but not the
obligation, to enforce CVD Patents and CVD Know-How against such third
parties at its own expense. Guidant shall cooperate as reasonably
requested in such enforcement, and CVD shall bear the reasonable costs
that Guidant incurs in providing such cooperation. If
10
<PAGE> 11
CVD fails to enforce any such infringement or misappropriation within
one hundred eighty (180) days after receiving notice thereof, then
Guidant shall then have the right, but not the obligation, to enforce
such infringement or misappropriation at its own expense. CVD shall
cooperate as reasonably requested in such enforcement, and Guidant shall
bear the reasonable costs that CVD incurs in providing such cooperation.
(b) Any net recovery obtained by the enforcing party as a result of such
enforcement as defined herein, by settlement or otherwise, shall be retained
exclusively by the enforcing party.
12. CONFIDENTIALITY
(a) The parties contemplate that information may be disclosed to one
another or generated under this Agreement which is confidential in nature. In
this regard, each party will maintain the confidential information of the other
party or generated under this Agreement in confidence and shall not make use
thereof, in whole or in part, except as expressly authorized in this Agreement.
(b) Except as specifically provided, and as may be necessary to develop
and sell Licensed Products and to enable Affiliates to make, have made, use,
sell, offer for sale and import Licensed Products and to practice processes and
methods as contemplated herein, each of the parties shall refrain from
communicating (for example, whether by disclosure or by providing access) any
portion of the confidential information of the other party to any third person,
firm, corporation or entity without first obtaining prior written permission
from the other party to this Agreement.
(c) In recognition of the proprietary nature and value of the
confidential information and the likelihood of loss of business by the other
party in the event of unauthorized disclosure of its confidential information,
the parties agree that the obligations of this Section shall continue unabated
regardless of expiration or termination of this Agreement for any reason, for a
period of not less than five (5) years from the effective date of such
expiration or termination. Neither party shall be obligated or required to
maintain in confidence any information which it can demonstrate with written
records:
(i) is at the time in question in the public domain, or is known
to the receiving party prior to disclosure by the disclosing party; or
(ii) is or has been furnished to the receiving party by a third
party not under a duty of confidentiality to the disclosing party;
(iii) is required to be disclosed by Federal or State Law, by a
court of competent jurisdiction or by a governmental agency; or
(iv) is independently developed without the use of confidential
information disclosed by the other party or generated under this
Agreement.
13. NO DISCLOSURE WITHOUT CONSENT OR LEGAL REQUIREMENT
(a) Neither party shall release any information to any third party with
respect to the terms or existence of this Agreement without the prior written
consent of the other party (which
11
<PAGE> 12
consent shall not be unreasonably withheld). This prohibition includes, but is
not limited to, press releases, educational and scientific conferences,
promotional materials, and disclosures to (or discussions with) the media. It is
understood, however that the parties shall have the right to provide required
information (but which, with respect to patent applications and the information
contained therein, shall only be provided to legal counsel) concerning this
Agreement to investors and potential investors, and to Affiliates in order to
enable them to carry out the activities contemplated hereunder and as each may
determine, in its reasonable judgment, to be required by law. Each party agrees
to notify the other party of its intention to disclose such information to a
third party (but not the identity of the third party). Notwithstanding the
foregoing, Guidant acknowledges that CVD may file a copy of this Agreement as an
exhibit to its public filings with the Securities and Exchange Commission and
describe this Agreement in such filings; provided, however, that CVD shall use
best efforts to redact the royalty rates and payment terms from such copy of
this Agreement before filing it. In addition, CVD agrees that it will provide
Guidant with an opportunity to review and comment upon the proposed redacted
version of this Agreement before it is filed with the Securities and Exchange
Commission.
(b) Neither party shall use the name of the other party in any
publication or promotional material or in any form for public distribution
without the prior written consent of the other party Notwithstanding the
foregoing in Section 13(a), CVD may issue a press release describing the
substance of this transaction, substantially in the form of the press release
that is attached to this Agreement as Exhibit C, which Exhibit is incorporated
by reference. After the dissemination of such press release, either party may,
without the consent of the other party, make additional public disclosures to
the extent such information already was disclosed by such press release.
14. TERM
This Agreement shall become effective on the Effective Date and shall
remain in effect, subject to earlier termination in accordance with other terms
of this Agreement, until it expires, on a country-by-country basis on the later
of the expiration of the last CVD Patent right to expire in such country or ten
(10) years from the Effective Date. Upon such expiration of this Agreement,
Guidant shall be deemed to have a fully paid-up license to the CVD Technology,
CVD Know-How and the CVD Patents
15. TERMINATION
(a) If either party breaches any of the material terms or conditions of
this Agreement, the other party may terminate this Agreement by giving at least
sixty (60) days advance written notice to the breaching party, specifying the
act or omission on which such termination is based. Should the breach be
remedied within sixty (60) days of such notice, this Agreement shall remain in
full force and effect, subject to continued compliance with all of the terms,
conditions and limitations of this Agreement. Otherwise, this Agreement shall
automatically terminate at the end of such notice period.
(b) Guidant shall have the right to terminate this Agreement or its
licenses under this Agreement, with or without cause, by giving thirty (30) days
advance notice to CVD of its intent to so terminate; provided, however, that
Guidant shall not have the right to terminate this Agreement or the licenses
under this Agreement without cause until such time as it has paid to CVD an
aggregate of U.S. $[*] under Section 6 hereof.
[*] Confidential Portions Omitted and Filed Separately with the Commission.
12
<PAGE> 13
(c) Termination or expiration of any license granted under this
Agreement shall not deprive either party of any accrued rights it may have,
including CVD's right to collect royalties on sales made prior to such
termination or expiration. Upon termination of this Agreement, Guidant shall
have the right to sell Licensed Product Bundles for which it has binding orders,
or that are in the process of being manufactured or that are in inventory. Such
sales shall be subject to the obligations to pay royalty provided for hereunder.
All other rights and obligations of the parties shall terminate upon termination
of this Agreement, except for the rights and obligations set forth in Sections
12, 14, 15(c), 17, 24, and 25 hereof, which shall survive such termination.
16. REPRESENTATIONS AND WARRANTIES
CVD represents and warrants to Guidant that (i) it has the right to
grant the licenses and rights granted herein and has full right and title to the
CVD Patents, (ii) other than the Grandfathered Distributors identified in
Schedule 16.ii to this Agreement, CVD has not granted any other person or entity
any claim or right to any aspect or part of the CVD Patents, (iii) Exhibit A is
a complete list of all CVD patents owned or controlled by CVD and relating to
the CVD Technology; (iv) it has the unencumbered right to grant the licenses and
rights granted in this Agreement, and (v) no other license, assignment, sale,
agreement or encumbrance has, or will, be made or entered into which would
conflict with this Agreement. CVD further represents and warrants that (i) to
its current, actual knowledge the CVD Patents are valid and enforceable, and
(ii) to its current, actual knowledge, without investigation, no rights of any
third party related to balloon catheters and/or Focus Technology for Stent
delivery will be infringed by the manufacture, use or sale of the Licensed
Products; and (iii) it has not received written notice of any claims or
threatened claims by any third party with respect to the manufacture, use or
sale of Licensed Products, and to its current, actual knowledge, is not aware of
any such claims or threatened claims.
17. INDEMNITY
(a) Except as set forth in Subsection 17(b), each of the parties shall
be responsible for its own errors and omissions and indemnifies, and agrees to
defend and hold harmless, the other party and its officers, directors,
professional staff, employees, and agents, and any of their respective
Affiliates, respective successors, heirs and assigns (the "Indemnitees"),
against any claim, demand, liability, damage, loss, judgment or expense
(including reasonable attorneys fees and expenses and out-of-pocket litigation
expense) incurred by or imposed upon the Indemnitees arising out of the
indemnifying party's own activities hereunder (including actions in tort,
warranty or strict liability), except to the extent due to negligence, willful
misconduct or omissions or recklessness of the other party. Each party shall
notify the other promptly of any claim, demand, suit or action arising out of
any activity hereunder, whether or not the subject of the indemnity herein, and
each shall cooperate as reasonably required in the defense of the matter, and
the other shall bear the reasonable out-of-pocket cost of such cooperation. The
indemnifying party shall have sole control over any litigation or settlement
thereof for which it is responsible under this paragraph, and it shall not be
required to pay any amount of any settlement to which it has not given its prior
written consent.
13
<PAGE> 14
(b) CVD shall defend, indemnify, and hold Guidant harmless from and CVD
shall defend or settle, any claim, demand, action, proceeding or suit ("Claim")
against Guidant or its customers arising out of any breach of CVD's
representations and warranties under Section 16 above. CVD shall have sole right
to control any action or settlement, and shall pay any final judgment entered
against Guidant or its customers on such issue in any Claim defended by CVD.
Guidant shall provide CVD full information and assistance to defend or settle
such Claim at CVD's expense.
(c) NEITHER PARTY SHALL BE LIABLE TO THE OTHER WITH RESPECT TO ANY
SUBJECT MATTER OF THIS AGREEMENT UNDER ANY CONTRACT, NEGLIGENCE, STRICT
LIABILITY OR OTHER THEORY FOR ANY LOST PROFITS, INCIDENTAL OR CONSEQUENTIAL
DAMAGES, EVEN IF A PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
THE PARTIES AGREE, HOWEVER, THAT THE FOREGOING LIMITATION DOES NOT APPLY TO ANY
AMOUNTS PAID OR PAYABLE TO A THIRD PARTY RELATED TO ANY CLAIM, DEMAND,
PROCEEDING, SUIT OR ACTION FOR WHICH A PARTY IS OBLIGATED TO INDEMNIFY THE OTHER
PARTY PURSUANT TO SUBSECTIONS 17(a) AND/OR 17(b) ABOVE; AND ANY SUCH AMOUNTS
WILL BE CONSIDERED COMPENSATORY OR DIRECT DAMAGES.
18. RELATIONSHIP OF THE PARTIES
It is understood that the parties hereto are independent contractors
engaged in the conduct of their own respective endeavors. Neither Guidant nor
CVD are to be considered the agent or employee of the other for any purpose, and
neither party has the right or authority to enter into any contract or assume
any obligation for the other or give any warranty or make any representation on
behalf of the other party except where and to the extent specifically authorized
in writing to do so.
19. ASSIGNMENT
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their permitted successors and assigns. Neither party may
assign this Agreement without the prior written consent of the other party,
except in connection with the transfer of substantially all of the business to
which this Agreement relates or to a purchaser of all or substantially all of
the assigning party's assets, provided that prior to the effective date of such
assignment the assignee delivers to the non-assigning party a written
undertaking by which the assignee agrees to be bound by all of the terms and
conditions of this Agreement. Any attempted assignment that fails to comply with
the requirements of this Section 19 shall be deemed to be null and void.
20. FORCE MAJEURE
In the event any party hereto is prevented or is otherwise unable to
perform any of its obligations under this Agreement due to fire, flood,
earthquake, war, strikes, lockouts, labor troubles, failure of public utilities,
injunctions, or other events beyond the reasonable control of the party
affected, the affected party shall give notice promptly to the other party in
writing and, thereupon, the affected party's nonperformance shall be excused and
the time for performance of this Agreement shall be extended for the period of
delay or inability due to such Force Majeure.
14
<PAGE> 15
21. AMENDMENT
Except as otherwise provided herein, this Agreement may not be amended,
supplemented, or otherwise modified except by an instrument in writing signed by
authorized representatives of CVD and Guidant.
22. NO WAIVER
No waiver of any term, provision, or condition of this Agreement,
whether by conduct or otherwise, in any one or more instances, shall be deemed
to be construed as a further or continuing waiver of such term, provision or
condition of this Agreement.
23. COUNTERPARTS
This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which shall constitute one and the
same instrument.
24. GOVERNING LAW, VENUE AND JURISDICTION
This Agreement shall be construed in accordance with the laws of the
State of California without reference to choice of law principles, as to all
matters, including, but not limited to, matters of validity, construction,
effect or performance. The exclusive venue and jurisdiction for resolution of
all matters arising out of or relating to this Agreement shall be as follows:
(a) If Guidant commences the action, then the exclusive venue and jurisdiction
shall be the courts located in Orange County, California, or, if applicable, the
Federal Courts in the Central District of California; and (b) if CVD commences
the action, then the exclusive venue and jurisdiction shall be the courts
located in Santa Clara County, California, or, if applicable, the Federal Courts
in the Northern District of California.
25. INFORMAL DISPUTE RESOLUTION.
In an effort to resolve informally and amicably any claim, controversy,
or dispute arising out of or related to the interpretation, performance, or
breach of this Agreement (a "Dispute") without resorting to litigation, each
party shall notify the other party to the Dispute in writing of any Dispute
hereunder that requires resolution. Such notice shall set forth the nature of
the Dispute, the amount involved, if any, and the remedy sought. Each party
shall promptly designate an executive-level employee to investigate, discuss and
seek to settle the matter between them. If the two designated representatives
are unable to settle the matter within thirty (30) days after such notification,
the matter shall be submitted to CVD's Chief Executive Officer and to the
President of Guidant's Vascular Intervention Group for consideration. If
settlement cannot be reached through their efforts within an additional thirty
(30) days (or such longer time period as they shall agree on in writing), then
either party may commence litigation in accordance with Section 24 above
26. ATTORNEYS FEES.
Except as otherwise provided herein, each party shall bear its own legal
fees incurred in connection with the transactions contemplated hereby, provided,
however, that if any party to this Agreement seeks to enforce its rights under
this Agreement by legal proceedings or otherwise, subject to Section 25 above,
the non-prevailing party shall pay all costs and expenses incurred by the
prevailing party, including, without limitation, all reasonable attorneys' fees.
15
<PAGE> 16
27. NOTICE
(a) Any notice, report or statement to either party required or
permitted under this Agreement shall be in writing and shall be sent by
certified mail, return receipt requested, postage prepaid, or facsimile
transmission with confirmation sent by certified mail as above, or by courier,
such as Federal Express, DHL, or the like, with confirmation of receipt by
signature requested, directed to the other party at its mailing address first
set forth above or facsimile number set forth below and to the attention of the
individual indicated below, or to such other mailing address as the respective
parties may from time to time designate by prior notice in compliance with this
Section.
Guidant: Guidant, Vascular Intervention
Fax: [*]
Attn.: General Counsel
CVD: CVD
Fax: (949) 457-9561
Attn.: President and Chief Executive Officer
(b) Any such notice, report or statement sent in accordance with the
requirements of Subsection 27(a) above shall be deemed to be fully given upon
dispatch, subject to proof of receipt.
28. SEVERABILITY
If any term or provision of this Agreement, or the application thereof
to any person or circumstance, shall to any extent be held invalid or
unenforceable under any controlling law, that provision shall be considered
severable and its invalidity shall not affect the remainder of this Agreement,
which shall continue in full force and effect.
29. CAPTIONS
Captions are inserted herein only as a matter of convenience and for
reference, and in no way define, limit, or describe the scope of this Agreement
or the intent of any provision herein.
30. SOLE UNDERSTANDING
This Agreement sets forth the entire agreement and understanding between
the parties as to the subject matter hereof, and supersedes, integrates and
merges all prior discussions, correspondence, negotiations, understandings or
agreements. The parties each represent and warrant that there are no conditions,
definitions, warranties, promises, agreements, understandings or
representations, or remaining obligations, written or oral, with respect to the
subject matter of this Agreement, other than as expressly provided in this
Agreement.
[*] Confidential Portions Omitted and Filed Separately with the Commission.
16
<PAGE> 17
31. JOINT PREPARATION OF AGREEMENT
This Agreement has been prepared jointly by the parties and shall not be
strictly construed against either party, it being agreed that each party has had
an opportunity to consult with counsel of its on choosing regarding the terms
and conditions of this Agreement.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed in duplicate originals effective as of the day and year first written
above.
CARDIOVASCULAR DYNAMICS, INC. GUIDANT CORPORATION
By: By:
-------------------------------- -------------------------------
Print Name: Print Name:
------------------------ -----------------------
Title: Title:
----------------------------- ---------------------------
<PAGE> 18
EXHIBIT A
LICENSE AGREEMENT BETWEEN
CARDIOVASCULAR DYNAMICS, INC.
AND
GUIDANT CORPORATION
RELEVANT CVD PATENTS AND APPLICATIONS
<TABLE>
<S> <C> <C>
================================================================================================
Issued
- ------------------------------------------------------------------------------------------------
Patent No. Title
- ------------------------------------------------------------------------------------------------
5,470,313 Variable Diameter Balloon Dilatation Catheter
- ------------------------------------------------------------------------------------------------
5,645,560 Fixed Focal Balloon for Interactive Angioplasty and Stent Implantation
================================================================================================
================================================================================================
U.S. Allowed
- ------------------------------------------------------------------------------------------------
Serial No. Title
- ------------------------------------------------------------------------------------------------
08/742,437 Focalized Intraluminal Balloons
================================================================================================
================================================================================================
U.S. Pending
- ------------------------------------------------------------------------------------------------
Serial No. Title
- ------------------------------------------------------------------------------------------------
08/670,683 Interactive Angioplasty
- ------------------------------------------------------------------------------------------------
5,645,560 Stent Implantation Catheter with Focalized Balloon
================================================================================================
================================================================================================
Foreign Pending
- ------------------------------------------------------------------------------------------------
Application No. Title County
- ------------------------------------------------------------------------------------------------
94119841.8 Variable Diameter Balloon Dilatation Catheter Europe
- ------------------------------------------------------------------------------------------------
5575.1995 Balloon Catheter, Multiple Zone Balloon Catheter, and Japan
Method of Use Thereof
- ------------------------------------------------------------------------------------------------
PCTUS97/07422 Focalized Intraluminal Balloons PCT
================================================================================================
</TABLE>
18
<PAGE> 19
CONFIDENTIAL - EXECUTION COPY
EXHIBIT B
LICENSE AGREEMENT BETWEEN
CARDIOVASCULAR DYNAMICS, INC.
AND
GUIDANT CORPORATION
REGIONS
1. NORTH AMERICA REGION:
Canada
United States
Mexico
2. EUROPEAN/MIDDLE EAST REGION:
KEY COUNTRIES:
o France
o Germany
o UK
o Spain
o Italy
Other countries: All countries in Europe, the Mediterranean and the
Middle East, including, but not limited to the following:
REGION COUNTRY
- ------ -------
Europe AUSTRIA
Europe BELGIUM
Europe CZECHREP
Europe DENMARK
Europe FINLAND
Europe ICELAND
Europe IRELAND
Europe NEDERLAND
Europe NORWAY
Europe POLAND
Europe PORTUGAL
Europe RUSSIA
Europe SLOVENIA
Europe SWEDEN
Europe SWITZERLAND
Europe YUGOSLAVIA
Europe SLOVAK
Europe HUNGARY
<PAGE> 20
CONFIDENTIAL - EXECUTION COPY
M/EAST CYPRUS
M/EAST EGYPT
M/EAST JORDAN
M/EAST KUWAIT
M/EAST LEBANON
M/EAST MALTA
M/EAST OMAN
M/EAST S/ARABIA
M/EAST SYRIA
M/EAST UNITED ARAB EMIRATES
MEDITER GREECE
MEDITER ISRAEL
MEDITER TURKEY
3. ASIA PACIFIC REGION:
KEY COUNTRY:
o Japan
Other countries: All countries in Asia, the Pacific Islands, Oceana and
South America, including, but not limited to the following:
REGION COUNTRY
- ------ -------
NEASIA CHINA
NEASIA HONGKONG
NEASIA KOREA
NEASIA JAPAN
NEASIA INDONESIA
NEASIA MALAYSIA
NEASIA PHILIPPINES
NEASIA SINGAPORE
NEASIA TAIWAN
NEASIA THAILAND
NEASIA AUSTRALIA
NEASIA N/ZEALAND
<PAGE> 21
CONFIDENTIAL - EXECUTION COPY
EXHIBIT C
LICENSE AGREEMENT BETWEEN
CARDIOVASCULAR DYNAMICS, INC.
AND
GUIDANT CORPORATION
FORM OF PRESS RELEASE
<PAGE> 22
CONFIDENTIAL - EXECUTION COPY
EXHIBIT D
LICENSE AGREEMENT BETWEEN
CARDIOVASCULAR DYNAMICS, INC.
AND
GUIDANT CORPORATION
TECHNOLOGY TRANSFER PLAN
In order to accomplish the "Successful Completion of Technology
Transfer" each party will be responsible for completing the tasks and milestones
identified below:
<TABLE>
<CAPTION>
====================================================================================================
TASK RESPONSIBLE PARTY COMPLETION DATE
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
1. Identify the materials CVD 3 weeks after the Effective Date
currently used to manufacture
Focus Technology balloon
catheters.
- ----------------------------------------------------------------------------------------------------
2. Identify current suppliers CVD 3 weeks after the Effective Date
for each of the materials
identified in Item 1 above.
- ----------------------------------------------------------------------------------------------------
3. Identify any known CVD 3 weeks after the Effective Date
limitations on access to the
materials identified in response
to Item 1 above and other known
special access requirements that
Guidant will need assistance
with.
- ----------------------------------------------------------------------------------------------------
4. Identify all materials CVD 4 weeks after the Effective Date
(other than those listed in
response to Item 1 above) that,
CVD and, to CVD's knowledge,
its suppliers tried to use in
connection with the manufacture
of Focus Technology balloon catheters.
- ----------------------------------------------------------------------------------------------------
5. Identify all known CVD 4 weeks after the Effective Date
limitations of the manufacturing
process with respect to the
materials identified in response
to Items 1 and 4 above.
====================================================================================================
</TABLE>
<PAGE> 23
CONFIDENTIAL - EXECUTION COPY
<TABLE>
<S> <C> <C>
- ------------------------------------------------------------------------------------------------
- ----
6. Identify all equipment that CVD 6 weeks after the Effective Date
CVD and, to CVD's knowledge, its
suppliers use in the
manufacturing process for Focus
Technology balloon catheters.
- ----------------------------------------------------------------------------------------------------
7. Identify the suppliers of CVD 6 weeks after the Effective Date
the equipment identified in
response to Item 6 above known
by CVD.
- ----------------------------------------------------------------------------------------------------
8. Identify all equipment (and CVD 6 weeks after the Effective Date
terms of use or sale) that CVD
has available to loan or sell to
Guidant that would be useful or
necessary to manufacture Focus
Technology balloon catheters.
- ----------------------------------------------------------------------------------------------------
9. Provide a full description CVD 8 weeks after the Effective Date
of the manufacturing process for
Focus Technology balloons used
by CVD, including all
pre-processing such as
extrusions or cross linking.
Give Guidant access to process
qualifications and validations
for all Focus Technology balloon
catheters manufactured by or for
CVD.
- ----------------------------------------------------------------------------------------------------
10. Make available to Guidant CVD 8 weeks after the Effective Date
the design-of-experiments
("DOEs") and other experiments
that describe limitations or
issues with the processes used
and attempted for use in the
manufacture of Focus Technology
balloon catheters by CVD
- ----------------------------------------------------------------------------------------------------
11. Provide Guidant with access CVD On-going, throughout
to CVD engineers and technicians technology transfer (6 months)
who are familiar with the Focus
Technology and related
manufacturing processes to
answer Guidant's questions.
- ----------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 24
CONFIDENTIAL - EXECUTION COPY
<TABLE>
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------
12. Knowledgeable CVD engineers CVD On-going, throughout
and technicians to meet with technology transfer (6 months)
Guidant in California to transfer
know-how and plans relating to
Improvements to the manufacturing
process and/or technology for Focus
Technology catheter balloons.
- ----------------------------------------------------------------------------------------------------
13. Deliver all available CVD 12 weeks after the Effective Date
technical information to Guidant
(by means of documentation and
meetings with knowledgeable CVD
engineers and technicians) pertaining
to performance capability, design
limitations, and design tradeoffs
associated with the Focus Technology.
- ----------------------------------------------------------------------------------------------------
14. Guidant to notify CVD in Guidant 30 days after completion of
writing whether CVD all tasks (other than
manufacturing processes for "on-going") described above.
Focus Technology balloon
catheters are suitable for
Guidant products.
====================================================================================================
</TABLE>
If, under item 14 above, Guidant determines that CVD's manufacturing processes
for Focus Technology balloon catheters would be unsuitable for Guidant products,
then Successful Completion of Technology Transfer will be deemed to have
occurred on the earlier of the date (a) when Guidant delivers written notice of
such determination to CVD; or (b) that is thirty (30) days after completion of
all tasks (other than on-going tasks) described in Items 1-13 above.
If, under item 14 above, Guidant determines that CVD's manufacturing processes
for Focus Technology balloon catheters would be suitable for Guidant products,
then the technology transfer also will include the following tasks, and
Successful Completion of Technology Transfer will be deemed to have occurred on
the date when Guidant completes its validation and testing of the manufacturing
process, as determined by the date on which Guidant has made ten clinical uses
of a Focus Technology balloon catheter.
<PAGE> 25
CONFIDENTIAL - EXECUTION COPY
<TABLE>
<CAPTION>
================================================================================================
TASK RESPONSIBLE PARTY COMPLETION DATE
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
15. Guidant to manufacture Focus Technology balloon Guidant and CVD
catheter using manufacturing processes provided
by CVD under Items 1 through 13 above. CVD to
assist with validation and testing as requested
by Guidant.
================================================================================================
</TABLE>
<PAGE> 1
EXHIBIT 11
CARDIOVASCULAR DYNAMICS, INC.
STATEMENT REGARDING THE COMPUTATION OF NET LOSS PER SHARE
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
1998 1997 1998 1997
-------- ------- ------- -------
<S> <C> <C> <C> <C>
Numerator:
Net loss ($1,850) ($ 589) ($3,824) ($1,187)
-------- ------- ------- -------
Net loss used for basic and diluted loss per share--
loss attributable to common stockholders ($1,850) ($ 589) ($3,824) ($1,187)
======== ======= ======= =======
Denominator:
Denominator for basic and diluted loss per share--
weighted average common shares outstanding 8,946 9,105 8,858 9,093
======== ======= ======= =======
Basic and diluted net loss per share ($ 0.21) ($ 0.06) ($ 0.43) ($ 0.13)
======== ======= ======= =======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 4,302
<SECURITIES> 23,900
<RECEIVABLES> 2,896
<ALLOWANCES> 506
<INVENTORY> 2,935
<CURRENT-ASSETS> 34,101
<PP&E> 2,408
<DEPRECIATION> 866
<TOTAL-ASSETS> 37,717
<CURRENT-LIABILITIES> 4,655
<BONDS> 0
0
0
<COMMON> 9
<OTHER-SE> 33,053
<TOTAL-LIABILITY-AND-EQUITY> 37,717
<SALES> 2,457
<TOTAL-REVENUES> 400
<CGS> 1,295
<TOTAL-COSTS> 1,295
<OTHER-EXPENSES> 3,769
<LOSS-PROVISION> 30
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,850)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,850)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,850)
<EPS-PRIMARY> 0.21
<EPS-DILUTED> 0.21
</TABLE>
